Parker-hannifin Corporation · NYSE:PH
Parker-hannifin — Q1 FY2021 Earnings Presentation
42 slides from Parker-hannifin's earnings presentation, Nov 5, 2020
Slide 1: Parker Hannifin 1st Quarter Fiscal Year 2021 Earnings Release
Exhibit 99.2 Parker Hannifin Corporation 1st Quarter Fiscal Year 2021 Earnings Release November 5, 2020
Slide 2: Forward-Looking Statements and Non-GAAP Financial Measures
Forward-Looking Statements and Non-GAAP Financial Measures Forward-looking statements contained in this and other written and oral reports are made based on known events and circumstances at the time of release, and as such, are subject in the future to unforeseen uncertainties and risks. These stat
Slide 3: Agenda
Agenda CEO Comments and Highlights of Quarter Results Results & Outlook Questions & Answers 3
Slide 4: Parker's Competitive Differentiators
Parker’s Competitive Differentiators ▪ The Win Strategy™ ▪ Decentralized business model ▪ Technology breadth & interconnectivity ▪ Engineered products with intellectual property ▪ Long product life cycles ▪ Global distribution, service & support ▪ Low capital investment requirements ▪ Great generato
Slide 5: Unmatched Breadth of Technologies
Unmatched Breadth of Technologies 5
Slide 6: Outstanding Performance in FY21 First Quarter
Outstanding Performance in FY21 First Quarter ▪ Top quartile safety performance; 31% reduction in recordable incidents ▪ Sales decline of 3.1% YoY; Organic decline of 13.0% YoY ▪ EBITDA margin was 19.5% as reported or 20.1% adjusted, +100 bps vs. prior ▪ Paid down $557 million of debt ▪ Record cash
Slide 7: Progress on Deleveraging
Progress on Deleveraging Rapid Debt Reduction ▪ ~$2 billion debt reduction in last eleven months ▪ Paid back 37% of the LORD & Exotic transaction debt ▪ Gross debt to EBITDA reduced to 3.4x from 3.6x at June 30, 2020 ▪ Net debt to EBITDA reduced to 3.0x from 3.3x at June 30, 2020 7
Slide 8: Savings from Cost Out Actions
Savings from Cost Out Actions FY21 Q1 FY21 Full Year Expected Permanent Permanent ~30% ~40% ~60% ~70% Discretionary Discretionary Savings FY21 Q1 FY21 Discretionary Actions ~125 ~175 Permanent Actions ~60 ~250 Total ~$185M ~$425M* Shifting to more permanent actions 8 *Estimated savings from cost act
Slide 9: Parker's Transformation
Parker’s Transformation PH LISTED NYSE
Slide 10: Parker Transformed by Portfolio & Performance Actions
Parker Transformed by Portfolio & Performance Actions ▪ Two major updates to the Parker Business System: • 2015 – The Win Strategy™ 2.0 • 2019 – The Win Strategy™ 3.0 ▪ Simplification has streamlined organization structure: • 126 to 84 divisions inclusive of acquisitions ▪ Acquired companies with hi
Slide 11: Raising the Floor on Operating Margins
Raising the Floor on Operating Margins Last 5 manufacturing recessions 18.9% Adjustments include deal-related amortization 15.7% 15.6% 14.8% 13.9% Up 1100 bps 13.8% 11.1% 9.7% 7.9% Original Win Strategy Launched 7.3% FY02 FY09 FY13 FY16 FY20 As Reported Operating Margin Adjusted Operating Margin¹ 11
Slide 12: The Win Strategy 3.0
The Win Strategy™ 3.0 The Win Strategy Our Vision: Engineering Your Success Goals Supply Chain, + Value Pricing Our Culture & Values Darker Enabling Engineering Breakthroughs that Lead to a Better Tomorrow
Slide 13: Win Strategy 3.0 Accelerates Performance
Win Strategy 3.0 Accelerates Performance ▪ Simplification – 80/20 + Simple by Design™ ▪ Innovation - Winovation Updates ▪ Digital Leadership ▪ Expand and Grow Distribution ▪ Kaizen, HPT and Lean ▪ Acquisitions – Consolidator of Choice ▪ Annual Cash Incentive Program (ACIP) Portfolio & Performance Tr
Slide 14: Catherine A. Suever, Chief Financial Officer
Catherine A. Suever Executive Vice President – Finance & Administration and Chief Financial Officer ▪ Will retire effective January 1, 2021 as part of her long-term plan after 33 years of dedicated service to the company ▪ Helped guide Parker through economic recessions and expansions, drive impleme
Slide 15: Todd M. Leombruno, Executive Vice President and CFO
Todd M. Leombruno Executive Vice President and Chief Financial Officer ▪ Currently Vice President and Controller, will succeed Cathy as CFO on January 1, 2021 ▪ 27 years with Parker, in-depth knowledge of our organization and business groups ▪ Has worked closely with our shareholders and analysts in
Slide 16: Summary of Fiscal 2021 1st Quarter Results
Summary of Fiscal 2021 1st Quarter Results
Slide 17: Diluted Earnings per Share 1st Quarter FY2021 vs. FY2020
Diluted Earnings per Share 1st Quarter FY2021 vs. FY2020 As Reported Adjusted 1 2 1: Adjusted for Acquired Intangible Asset Amortization, Business Realignment Charges, Integration Costs to Achieve, and the tax effect of such adjustments 17 2: Adjusted for Acquired Intangible Asset Amortization, Busi
Slide 18: Influences on Adjusted Earnings per Share
Influences on Adjusted Earnings per Share 1st Quarter FY2021 vs. FY2020 2 1 1: Adjusted for Acquired Intangible Asset Amortization, Business Realignment Charges, Integration Costs to Achieve, and the tax effect of such adjustments 2: Adjusted for Acquired Intangible Asset Amortization, Business Real
Slide 19: Sales & Segment Operating Margin Total Parker
Sales & Segment Operating Margin Total Parker $ in millions 1st Quarter FY2021 % Change FY2020 Sales As Reported $ 3,231 (3.1)% $ 3,335 Acquisitions1 305 9.1 % Currency 26 0.8 % Organic Sales $ 2,900 (13.0)% FY2021 % of Sales FY2020 % of Sales Segment Operating Margin As Reported $ 543 16.8 % $ 567
Slide 20: Sales & Segment Operating Margin Diversified Industrial North America
Sales & Segment Operating Margin Diversified Industrial North America $ in millions 1st Quarter FY2021 % Change FY2020 Sales As Reported $ 1,528 (5.9)% $ 1,625 Acquisitions1 138 8.5 % Currency (6) (0.3)% Organic Sales $ 1,396 (14.1)% FY2021 % of Sales FY2020 % of Sales Segment Operating Margin As Re
Slide 21: Sales & Segment Operating Margin Diversified Industrial International
Sales & Segment Operating Margin Diversified Industrial International $ in millions 1st Quarter FY2021 % Change FY2020 Sales As Reported $ 1,129 4.7 % $ 1,079 Acquisitions1 99 9.1 % Currency 30 2.9 % Organic Sales $ 1,000 (7.3)% FY2021 % of Sales FY2020 % of Sales Segment Operating Margin As Reporte
Slide 22: Sales & Segment Operating Margin Aerospace Systems
Sales & Segment Operating Margin Aerospace Systems $ in millions 1st Quarter FY2021 % Change FY2020 Sales As Reported $ 573 (9.2)% $ 631 Acquisitions1 68 10.8 % Currency 1 0.1 % Organic Sales $ 504 (20.1)% FY2021 % of Sales FY2020 % of Sales Segment Operating Margin As Reported $ 87 15.1 % $ 123 19.
Slide 23: Cash Flow 1st Quarter FY2021 vs. FY2020
Cash Flow 1st Quarter FY2021 vs. FY2020 Cash Flow from Operations $ Millions Q1 FY2021 Highlights ▪ Cash Flow from Operations of 22.8% of Sales ▪ Free Cash Flow of 21.5% of Sales ▪ Free Cash Flow Conversion of 216% 23
Slide 24: Order Rates
Order Rates Sep 2020 Jun 2020 Sep 2019 Jun 2019 (12)% (22)% (2)% (3)% Total Parker (11)% (29)% (6)% (4)% Diversified Industrial North America Diversified Industrial International (4)% (21)% (10)% (8)% (25)% (5)% 22 % 10 % Aerospace Systems Excludes Acquisitions, Divestitures & Currency 3-month year-
Slide 25: FY2021 Guidance Increased
FY2021 Guidance Increased EPS Midpoint: $10.23 As Reported, $12.00 Adjusted Sales Growth vs. Prior Year Diversified Industrial North America (4.0)% - (1.0)% Diversified Industrial International 0.3% - 3.3% Aerospace Systems (16.0)% - (13.0)% Total Parker (5.0)% - (2.0)% Segment Operating Margins As
Slide 26: FY2021 Guidance Reconciliation of Q1 Beat and Updated Guidance
FY2021 Guidance Reconciliation of Q1 Beat and Updated Guidance 1 2 1: Adjusted for Acquired Intangible Asset Amortization, Business Realignment Charges, Integration Costs to Achieve, and the tax effect of such adjustments 26 2: Adjusted for Acquired Intangible Asset Amortization, Business Realignmen
Slide 27: Key Messages
Key Messages ▪ Strength & interconnectivity of Parker’s portfolio ▪ Strategic portfolio transformation – CLARCOR, LORD & Exotic ▪ Improving financial performance over the cycle ▪ The Win Strategy™ 3.0 & Purpose Statement will accelerate performance Confident in achieving updated FY23 Targets 27
Slide 28: LISTED
PH LISTED NYSE
Slide 29: Appendix
Appendix ▪ Consolidated Statement of Income ▪ Adjusted Amounts Reconciliation ▪ Reconciliation of EPS ▪ Business Segment Information ▪ Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin ▪ Reconciliation of EBITDA to Adjusted EBITDA ▪ Consolidated Balance Shee
Slide 30: Consolidated Statement of Income (Unaudited)
Consolidated Statement of Income (Unaudited) Three Months Ended September 30, (Dollars in thousands, except per share amounts) 2020 2019 Net sales $ 3,230,540 $ 3,334,511 Cost of sales 2,384,328 2,479,741 Selling, general and administrative expenses 369,851 399,179 Interest expense 65,958 69,956 Oth
Slide 31: Adjusted Amounts Reconciliation Consolidated Statement of Income
Adjusted Amounts Reconciliation Consolidated Statement of Income (Dollars in thousands, except per share data) (Unaudited) Quarter-to-Date FY 2021 Acquired Intangible Business Lord Exotic As Reported Asset Realignment Costs to Costs to Adjusted September, 30 2020 % of Sales Amortization Charges Achi
Slide 32: Adjusted Amounts Reconciliation Business Segment Information
Adjusted Amounts Reconciliation Business Segment Information (Dollars in thousands) (Unaudited) Quarter-to-Date FY 2021 Acquired Business Exotic As Reported Intangible Asset Realignment Lord Costs to Costs to Adjusted September 30, 2020 % of Sales Amortization Charges Achieve Achieve September 30, 2
Slide 33: Reconciliation of Earnings per Diluted Share to Adjusted
Reconciliation of Earnings per Diluted Share to Adjusted Earnings per Diluted Share (Unaudited) Three Months Ended September 30, (Amounts in dollars) 2020 2019 Earnings per diluted share $ 2.47 $ 2.60 Adjustments: Acquired intangible asset amortization expense 0.63 0.38 Business realignment charges
Slide 34: Business Segment Information (Unaudited)
Business Segment Information (Unaudited) Three Months Ended September 30, (Dollars in thousands) 2020 2019 Net sales Diversified Industrial: North America $ 1,528,111 $ 1,624,605 International 1,129,251 1,078,850 Aerospace Systems 573,178 631,056 Total net sales $ 3,230,540 $ 3,334,511 Segment opera
Slide 35: Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin
Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin 35
Slide 36: Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin
Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin (Unaudited) Three Months Ended Three Months Ended (Dollars in thousands) September 30, 2020 September 30, 2019 Operating income Operating margin Operating income Operating margin Total segment operating incom
Slide 37: Reconciliation of EBITDA to Adjusted EBITDA
Reconciliation of EBITDA to Adjusted EBITDA (Unaudited) Three Months Ended September 30, (Dollars in thousands) 2020 2019 Net sales $ 3,230,540 $ 3,334,511 Net income $ 321,717 $ 339,041 Income taxes 93,578 94,115 Depreciation and amortization 148,442 109,071 Interest expense 65,958 69,956 EBITDA 62
Slide 38: Consolidated Balance Sheet (Unaudited)
Consolidated Balance Sheet (Unaudited) September 30, June 30, September 30, (Dollars in thousands) 2020 2020 2019 Assets Current assets: Cash and cash equivalents $ 742,394 $ 685,514 $ 3,627,393 Marketable securities and other investments 33,463 70,805 282,102 Trade accounts receivable, net 1,860,32
Slide 39: Consolidated Statement of Cash Flows (Unaudited)
Consolidated Statement of Cash Flows (Unaudited) Three Months Ended September 30, (Dollars in thousands) 2020 2019 Cash flows from operating activities: Net income $ 321,717 $ 339,041 Depreciation and amortization 148,442 109,071 Share incentive plan compensation 58,461 52,633 Gain on plant and equi
Slide 40: Reconciliation of Free Cash Flow Conversion
Reconciliation of Free Cash Flow Conversion (Unaudited) Three Months Ended (Dollars in thousands) September 30, 2020 Net income $ 321,717 Cash flow from operations $ 737,374 Capital Expenditures (42,117) Free cash flow $ 695,257 Free cash flow conversion (free cash flow / net income) 216 % 40
Slide 41: Reconciliation of EPS Fiscal Year 2021 Guidance
Reconciliation of EPS Fiscal Year 2021 Guidance (Unaudited) (Amounts in dollars) Fiscal Year 2021 Forecasted earnings per diluted share $9.93 to $10.53 Adjustments: Business realignment charges 0.46 Costs to achieve 0.14 Acquisition-related intangible asset amortization expense 2.47 Gain on sale of
Slide 42: Supplemental Sales Information Global Technology Platforms
Supplemental Sales Information Global Technology Platforms Three Months Ended (Unaudited) September 30, (Dollars in thousands) 2020 2019 Net sales Diversified Industrial: Motion Systems 657,141 766,815 Flow and Process Control 924,125 1,011,354 Filtration and Engineered Materials 1,076,096 925,286 A